- No (87%)
- Yes (8%)
- Not sure (5%)
Our latest poll asks advisers to consider whether John Trowbridge’s ‘Reform Model’ proposal for future adviser remuneration is sustainable.
This poll follows the release of the Trowbridge recommendations last week, which have generated an unprecedented level of response amongst the adviser community. The widespread and deeply-felt responses we have received so far have been in reaction to an entirely new life insurance industry model proposed by Mr Trowbridge, which he says is intended “… to place the consumer at the centre of what life insurers and advisers do.”
Expressing his rationale in another way, Mr Trowbridge has said in his Final Report that his overarching goal in making these recommendations was to “… improve the alignment of interests across the life insurance value chain, from insurer to licensee to adviser to consumer.”
While the Trowbridge recommendations span four broad areas of: adviser remuneration, licensee remuneration, quality of advice and insurer practices, the cornerstone of the recommendations, as stated by Mr Trowbridge, is his Reform Model adviser remuneration proposal.
We’re asking you to reflect on whether a 20% flat commission, supplemented by a $1,200 Initial Advice Payment (paid by the insurer) will generate a viable platform for future advice practices; particularly risk-focussed advice businesses.
The following points are taken from the Final Report and detail Mr Trowbridge’s Reform Model remuneration proposal:
- The level commission is a maximum of 20% of premiums
- The Initial Advice Payment (IAP) is paid by the insurer to the adviser on a per client basis (usually the insured life)
- The IAP is available to the adviser when a client first takes out a life insurance policy and then no more often than once every five years (the “five year rule”)
- The IAP is a maximum of $1,200 or, for customers with annual premiums below $2,000, no more than 60% of the first year’s premiums
Further, to support the integrity of the Reform Model, it is recommended that:
- The IAP be available only on advised business (i.e. for personal advice only and not available for general advice, either through direct sales or other agency sales or through group life policies inside superannuation funds)
- Existing arrangements for retention periods (‘clawbacks’) apply to commission on the first year’s premium and to the IAP if there is one
- All commission or other payments from insurer to adviser be fully transparent to the client with the adviser disclosing clearly whether any insurer payments represent full, partial or nil commissions
- The adviser and client remain free to agree on fees for service that are additional to the insurance premium.
Would this remuneration model work for you, given the circumstances of your advice practice? Would it work for some, but not others? Is it too much of a change to expect advisers to accept? What is your verdict?
The feedback we have already received from the overwhelming level of responses to our initial news story on the Trowbridge recommendations (see: 20% Flat Commissions – Trowbridge) is telling us that the vast majority of advisers do not agree with Mr Trowbridge’s cornerstone recommendation. But here is your chance (or another chance) for you to have your say.
We will report back to you on the outcome of this poll later this week, and we will also be reporting on all the other key issues stemming from this potentially landmark report.
When will outsiders be held accountable for the complete and utter shambles this industry finds itself in? Every time somebody from outside the industry with zero adviser experience puts their two bobs worth in it creates more problems for everyone.
I understood the primary objective of the legislation passed in 2000 was to remove the “Tied agent” and replace them with advisers who selected the best product to meet the financial objectives of the client.
It has achieved that with advisers who are not “tied” or employed by major institutions.
Hybrid and Level commissions are vital to the survival of many of those advisers who are not “tied”.
Now with the Trowbridge report the proposition is “lets cut adviser revenue by at least 30% from the present level commission option” ostensibly to fix churn..
The principle beneficiary of the introduction of the Trowbridge recommendations will be the major financial institutions, the objectives of the original reforms of 2000 will be thwarted, and consumers will lose choice, and eventually product quality.One only has to look at the direct market and Group insurance to see terms and conditions that are at best misleading and in reality a fraud executed at the expense of the reputation of product provided through advisers.
The misleading direct and group products are provided by vendors who when seeking the recommendation of non-aligned advisers offer competitive and innovative product.
It all goes to show that vendors, not advisers, are $ guided missiles who owe it to their shareholders and policy holders to remain viable and profitable.
Once the vendors have to sell direct to a public with no advice it becomes a race to the bottom on price and quality.
The regulation we have is working, don’t try to fix it, enforce it more effectively!
I don’t know if its worth commenting on ?? I have not as yet seen one constructive idea acted upon. The only issue I have seen addressed is high upfront commissions cause bad advice ?? And hasn’t that been handled well ?? Lets go from 100% to 20% that will fix the problem !!!
We need our associations to come out “swinging” at this ridiculous proposal. By the way what is the FPA ‘S view on this ?? has anyone heard ? can someone tell me ??
If this was a shot at Industry based Super Fund the unions would be up in arms about it
Come on AFA don’t “stuff” around with this let them know what at this point 84% of advisers are saying. We cannot work, let alone survive in the industry with this type of proposal in place.
we in this industry are paid on performance only,no guarantees we may work for nothing at times we are seliing a non tangible product,nobody wakes up to by our product,our product is a moving target and longtivity is maybe 7yrs?if we are paid upfront we understand there may be a claw back under 12mths,and it sometimes happens when you less expect it,,look we all get out of bed for the mighty dollar,two types of money,you working for it,or it working for you? most of us are working for it .now if you cut us from a potential 120% to 20% most of us wont survive in this industry,remember our business expenses ect dont go away,,common sense here should prevail..
After FOFA requirements which I already fulfil, I’m almost tempted to scope out insurance advice altogether from my offering. If clients already have some sort of group cover in place, I’ll just leave it up to them to retain or increase but without my involvement.
Once I take into account product research, risk analysis, SOA prep, replacement tables, implementation, countless paperwork, follow ups, gp reports and so on, 20% commission means my business will fall over in no time.
Looking back, I should’ve worked for the unions instead, secret commissions left, right and centre, non-disclosures, zero accountability, little governance, conflicts of interest ok, and a major political party which will watch my back at all times. However, I wouldn’t sleep well at night…
What he doesn’t understand is that the $5,000-$6,000 per year premium policies @ 110% upfront commission funds the $300-$500 per year premium policies when it costs the business about $1,500 where as capping the IAP at $1,200 we will actually be losing money to provide advice thus the fewer people receiving advice means that more and more aussies are going to be under insuranced. Personally I would be able to live with upfront commissions removed and implement a 80% upfront 20% trail hybrid model. At least the 80% upfront pays for the SOA’s etc…. and we can still make some money. Also how is a business to grow or how is someone going to be able to start a business from scratch at a 20% level commission rate. If you taked into account rent at $30,000 (office in non-metro area) + PI & liabaility insurance, office running costs, motor vehicle and dealer split the costs would be around $100,000. The numbers just don’t stack up on a level commission split. We have to put food on the table for our family too.
Well now !
As said in an email to the AFA a week ago , I can hear the train coming. WE ARE BEING RAILDOADED……NOW THE TRAIN IS IN THE STATION and what has the AFA or any other body done about it?……………….NOTHING!
Talk about conflicted look at the people making the decision and the board. Public servants CEO’S all vested interests of one sort or another plus a blind lack of knowledge … and very little business experience.
Towbridge was given several examples of what it cost to find a client and write the business,
Went straight over his head!
As if the last round of legislative changes wasn’t attack enough, this latest nonsense is really going too far. Many submissions were made to Trowbridge before his report was finalised and it seems that he has ignored all advice received and is recommending the worst possible option.
If anyone thinks the client will benefit from this policy, they are completely wrong. As the AFA has said, people will pay more for insurance as advisers won’t be able to survive on the 20% level first payment and $1,200 once you take into account: meeting and research time, para planning, editing of SOA, admin time to submit and track the application through underwriting (and then it possibly falling over altogether), office and staffing costs, etc.
I have heard several advisers say that if this policy passes into legislation, they will be laying off their full time staff, closing one or all of their offices and give up doing risk work. Then as well as paying more for their insurance, the client will have no office to visit or staff to answer the phone when they call for help or to make a claim. If something more innovative/better priced/more suitable comes along 2 or 3 years after a policy is taken out, no one will want to help the client make this change as there will be no fee to cover the plan writing/research etc… and 20% payment will be what they are already getting. The client is going to suffer as they will effectively have to wait out their 5 year term before anyone will be able to help them unless they want to pay a lot of money themselves (negating the benefits of a better priced policy, etc.).
I don’t know why people from outside the industry are allowed to make recommendations about things they clearly don’t understand, when these policies will have so many ‘unintended consequences’ which are so blatantly obvious to people in the industry. Surely this man has enough intelligence to see the client, adviser and even insurers will suffer if this policy goes ahead. Less people will get insurance (and quality advice about it), advisers will move on to other areas of financial advice and the quality insurers will get less business.
Why don’t these people take a look at the direct insurers flogging their (often poor quality) products with no advice? These will be the winners of his policy, as they will pick up more business when no one else will be around to help them. These people will think they have the right insurances, when chances are they won’t. I have seen IP cover with the longest waiting period and shortest benefit period from one of these providers (I didn’t even know policies this bad existed!) and for the poor person who will never work again who had that policy, what a terrible shame. The same for the man who rings up from a TV ad and is offered up to $1 million of life cover with no medicals and says “No, I just need enough to pay off my mortgage, $250,000 thanks”. You can see a wife and kids running around in the background of the ad! No one will tell him those people will have no money to live on… its a disgrace.
As others have said, we have the right (albeit extremely cumbersome) legislation in place to ensure advisers do the right thing, it just needs more regulation to enforce it for anyone who isn’t.
Trowbridge is not acting in the best interests of retail consumers or the advice industry. I believe that his recommendations fail the retail advisers test within Corp Act 2001, Sec 961B. To reasonably be regarded as acting in the best interests of the retail consumers or the advice industry, given the relevant circumstances? And yes, he does have a duty of care given his position of influence. He has opted for the popular verdict above an intelligent and strategic recommendation.
I can only assume that in the mutual interest of our members and of the public good the AFA and FPA are both lobbying hard to have these ill-conceived recommendations debunked.
After all, that’s what the fees are supposed to be going towards.
As if the last round of legislative changes wasn’t attack enough, this latest nonsense is really going too far. Many submissions were made to Trowbridge before his report was finalised and it seems that he has ignored all advice received and is recommending the worst possible option.
If anyone thinks the client will benefit from this policy, they are completely wrong. As the AFA has said, people will pay more for insurance as advisers won’t be able to survive on the 20% level first payment and $1,200 once you take into account: meeting and research time, para planning, editing of SOA, admin time to submit and track the application through underwriting (and then it possibly falling over altogether), office and staffing costs, etc.
I have heard several advisers say that if this policy passes into legislation, they will be laying off their full time staff, closing one or all of their offices and give up doing risk work. Then as well as paying more for their insurance, the client will have no office to visit or staff to answer the phone when they call for help or to make a claim. If something more innovative/better priced/more suitable comes along 2 or 3 years after a policy is taken out, no one will want to help the client make this change as there will be no fee to cover the plan writing/research etc… and 20% payment will be what they are already getting. The client is going to suffer as they will effectively have to wait out their 5 year term before anyone will be able to help them unless they want to pay a lot of money themselves (negating the benefits of a better priced policy, etc.).
I don’t know why people from outside the industry are allowed to make recommendations about things they clearly don’t understand, when these policies will have so many ‘unintended consequences’ which are so blatantly obvious to people in the industry. Surely this man has enough intelligence to see the client, adviser and even insurers will suffer if this policy goes ahead. Less people will get insurance (and quality advice about it), advisers will move on to other areas of financial advice and the quality insurers will get less business.
Why don’t these people take a look at the direct insurers flogging their (often poor quality) products with no advice? These will be the winners of his policy, as they will pick up more business when no one else will be around to help them. These people will think they have the right insurances, when chances are they won’t. I have seen IP cover with the longest waiting period and shortest benefit period from one of these providers (I didn’t even know policies this bad existed!) and for the poor person who will never work again who had that policy, what a terrible shame. The same for the man who rings up from a TV ad and is offered up to $1 million of life cover with no medicals and says “No, I just need enough to pay off my mortgage, $250,000 thanks”. You can see a wife and kids running around in the background of the ad! No one will tell him those people will have no money to live on… its a disgrace.
As others have said, we have the right (albeit extremely cumbersome) legislation in place to ensure advisers do the right thing, it just needs more regulation to enforce it for anyone who isn’t.
As I read through the Trowbridge report, and much of the ensuing coverage, I’ve tried to look at it as dispassionately as possible, because I believe an emotional reaction will be easily dismissed by the vested interests pushing this agenda.
Yet this is becoming incredibly difficult in the face of such a flawed, deeply unreasonable and flimsy campaign.
Firstly, the ASIC report upon which this has all been based was so selective, so specifically structured as to fail any sort of basic statistical integrity test.
As a study of the behaviour of the worst churners in the industry then, yes, perhaps it’s of some value. But to take those results and extrapolate them across the industry, then use that as a basis to upend the status quo is indefensible.
In addition, the battle against churn has been used as a justification for this nonsense. Well, I believe they have a long way to go before proving churn is a widespread, common practice, rather than the behaviour of a handful of nefarious operators.
The best interests duty should be enough of a weapon to defeat churn – either the replacement is in the clients best interests, in which case it’s got nothing to do with the insurer, or it’s not, in which case the adviser should get hit over the head.
The Trowbridge recommendations are unnecessary in battling a problem that they can’t even prove exists.
Next, how can Mr Trowbridge say that fee for service has never worked – anywhere – for broad scale risk advice, yet go on to say that his ‘reform model’ has been designed to pay advisers less than the estimated cost to provide their advice – with the difference to be made up by those fees he acknowledge client’s won’t pay?
The other sections of his poorly written, insensible report are simply for him to hide behind as he says that he’s trying to address the three groups in insurance. A life insurer code of conduct? ‘Streamlined’ advice processes? Licensee reform? These ‘recommendations’ are about as robust as a stiff breeze.
Once again, all of the heavy lifting is being dropped on advisers shoulders.
The report has clearly been shaped to fit into the already determined outcomes. The linguistic contortions he needs to perform to try and make these ideas make sense are remarkable.
The recommendations don’t actually make any sense, unless they’re viewed through the prism of what the big companies really want.
How does the 5-year exclusion period benefit anybody but the incumbent insurer? He’s effectively stripping out any sort of competitive tension in the insurance market.
Why should licensees get paid an extra 2% of in-force premiums? What the hell for? Oh, that’s right – many of the insurers own licensees and wouldn’t it be nice for them to top up their bottom line a little?
Why 20%? Oh, of course, because if we went to level comms on 30%, the big insurers are much less profitable in the medium-to-short term.
I understand that what’s recommended is essentially a capped hybrid structure. And yes, I can appreciate that there is an argument against upfront commissions.
But there are also arguments against our dealer/licensee model. Against the vertical integration model. Against the inane behaviour of the insurers in the group market. Against the outrageously voluminous compliance we’re all forced to wade through. Against the direct insurance market. Against a hundred other things.
Yet we’re confronted with having a cap put on our earnings, of having the income across the industry gutted, of bearing the cost of a whole range of mistakes and problems that weren’t ours.
So there’s just no sense to it all, there’s no logical foundation. If there was – if there was something here other than protecting the interests of the short-sighted insurers that have lost buckets of money idiotically playing in the group arena – then I could maintain my attempt at a dispassionate response.
But us, and our clients, are being told to suck eggs because of the serious and mindless stupidity of senior management at insurance companies. And it’s being done under the guise of ‘consumer protection’.
And that leaves me – and from what I can tell, many of my colleagues – with a deep, irrational, wrathful rage.
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